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When a company announces a massive acquisition, a stock price falls by more than 15%, suggests it is based on a volatile foundation. That’s the situation where James Hardy Industries, a Chicago-based Australia-listed building materials provider, found itself following a $8.755 billion cash and share deal for our deck maker azek.
Partly because James Hardy offers Target the best room in the house. Under the proposed transaction, Azek shareholders will acquire $3.8 billion in cash plus 26% of the total group worth $15.8 billion, adding the present value of the proposed cost reductions after tax.
That package equals 30% or more premium to where Azek traded before the transaction was announced. Meanwhile, James Hardy’s investors are shrinking. Their share in combined entities means that they are 8% worse on paper than before they started. To create that shortfall, you will need to increase the revenue they expect, but it is difficult to predict.
The supplies in US buildings have proven to be rare and bright places during a period of pessimism for deal-making, and M&A values are suffering at their lowest in a decade. Last week, distributors’ beacon roof supplies succumbed to a $11 billion offer from billionaire Brad Jacobs. James Hardie is adding outdoor living products through Azek, focusing on the exterior of the home. Homeowners who want to raise an aging facility may want to sit in a place where they can admire their new siding.
However, combining for growth also has a point where it appears to be huddled together to stay warm. High mortgage interest rates continue to weigh heavily in the US housing market. These encourage borrowers with standard US-style fixed-rate transactions and can stay in fear of increased loan costs. Despite the rate reduction rate of the Federal Reserve percentage since September, the 30-year fixed mortgage rate, at 6.7% last week, remains historically high.
Stubborn inflation has reduced expectations for further financial easing this year, but lower economic growth will not encourage upgrades to expensive housing. Starting the year with an optimistic note, the home builder is now deterring performance in the broader stock market as they want to pick up activities soon.
Azek shares jumped 20% in the transaction. However, by the end of Monday, the total companies were less valuable than the end of Friday. It is not surprising that divergent bids in an uncertain economy have come across some issues with sinking.
jennifer.hughes@ft.com
